Systemic Risk Council
April 5, 2013
Dear Chairman Bernanke:
The Systemic Risk Council is writing in support of the Federal Reserve’s proposed rule regarding the supervision of foreign banking and nonbank financial operations (FBOs) in the United States. This proposed rule would implement the enhanced prudential standards and early remediation requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) as they apply to FBOs. The rulemaking addresses one of our key priorities: immediate action to propose and finalize rules that will substantially strengthen both the quality and amount of capital at the largest financial institutions operating in the United States, in this case, foreign financial institutions.
In the years leading up to the financial crisis, FBOs increased their reliance on short-term, wholesale funding to support long-term assets and were even more highly leveraged than their U.S. counterparts. During the crisis and its aftermath, the Federal Reserve found it necessary to provide substantial funding to FBOs as part of its broader efforts to stabilize the U.S. financial system. As FBOs have become major players in the United States — for example, five of the top 10 broker-dealers have non-U.S. parents — they have come to pose the same type of potential risks to the U.S. system as do large, domestically-based financial institutions.